Kicking the Oil Habit

By

July 15, 2010

Captain Pete, as everyone in town calls him, has been an oysterman nearly his entire life. He started as a boy, learning the trade from his father, who had learned it from his father. Working fourteen-hour days from leased oyster beds in Barataria Bay, forty miles south of New Orleans, Captain Pete’s family supplied the city’s premier vendor, P&J Oyster Company. When P&J closed its doors on June 10, it was front-page news in New Orleans—one more in a string of casualties of BP’s deep-sea oil catastrophe.

"It took fifty days for BP’s oil to reach our beds," Captain Pete tells me as he steers a flatboat out to survey the damage one steamy afternoon. Video he shot a few days before showed streaks of oil the texture of jello staining the marsh grasses that shelter his oyster beds. "Those grasses will shrivel and die," he says in an accent so thick I struggle to comprehend him. With time, and a respite from additional oil, the grasses could grow back and oyster harvesting resume, he adds. But this year’s harvest is a total loss, and since BP’s gusher clearly isn’t going to be plugged anytime soon, much more oil is certain to slather those grasses.

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So it makes sense that Captain Pete would welcome President Obama’s moratorium on deep-sea drilling. Except he doesn’t. The captain lost his house in Hurricane Katrina five years ago, and now the BP disaster may bankrupt the family business, which was helping to put his son through college. But the moratorium? To Captain Pete, it’s one more lunacy imposed on coastal Louisiana by outside "experts," a group he neither trusts nor respects. Invoking an analogy I heard countless times during a week of reporting there, he asks, "When a airplane crashes, do you ground every plane in the country? No. You find out what caused the problem and fix it. You don’t punish the entire industry." He points a well-muscled arm toward the dozens of other shrimp and fishing boats docked nearby. "Sixty percent of these guys work on oil rigs, or they service rigs, during the [seafood] off-season," he explains. "The economy here was just getting back on its feet after Katrina. This moratorium will kill us."

Anyone who is serious about the United States kicking its oil habit in the wake of the BP disaster must confront the realities of Louisiana, a state whose economy, politics and self-image have been saturated in oil for more than a century. They must have an answer for Captain Pete and other locals who are cursing BP even as they wonder how they will support their families if the oil and gas industry—widely regarded as the source of the best-paying blue-collar jobs in Louisiana—goes under. "We see the same reaction from people in the coal country of Appalachia and the timber lands of the Pacific Northwest," says Michael Brune, executive director of the Sierra Club. "They may criticize the corporations doing the resource extraction, but they still want the extraction to continue because it’s the only jobs they know. The only way to approach these folks with integrity is to offer them a prosperous alternative. If you support a drilling moratorium, which the Sierra Club does, you also have to support a massive shift toward green jobs."

Plotting a green energy future for Louisiana, however, has been too daunting a task for most environmental groups. "Our side hasn’t made a blueprint for Louisiana because this state is seen as so pro–oil and gas," observes Jerome Ringo, a former Louisiana oil worker who has been chair of the National Wildlife Federation and president of the Apollo Alliance. "To be honest, I doubt Louisiana will ever get off oil completely. But we do need to diversify our energy mix. We need to think about where our state goes ten years from now and invest in the green jobs of the future."

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But Louisiana can surprise you. Who knew that this petrostate boasts by far the strongest solar tax credit in the country? Passed in 2007, the 50 percent credit cuts the cost of installing a solar system in half. Combine that with Obama’s 30 percent federal tax credit and a Louisiana homeowner gets an 80 percent discount to go solar and live off the grid—not a bad choice in a region where storms regularly knock out the conventional power supply.

Even parts of the Louisiana business community—long a bastion of the oil and gas industry—may be seeing the light. With great fanfare, Greater New Orleans, Inc. in May launched its GreenN.O. coalition, which recognizes "the double bottom line of diversifying the economy while sustaining the environment." A study by the global consulting firm McKinsey estimates that pursuing sustainable business opportunities could create 90,000 jobs in Louisiana. Beth Galante, executive director of the New Orleans office of the nonprofit Global Green USA, sees this shift within the business community as "winning a major battle in the war" to sway local public opinion. "To get a chamber of commerce that is dominated by one of the most conservative oil and gas industries in the country to invest time and money in green energy is huge," she argues. "The political philosophy of many Americans, especially in the South, is that whatever makes money is good. This will help people realize there are great opportunities in green energy."

Great opportunities but also great challenges. It’s not only apoliticals like Captain Pete who oppose Obama’s moratorium. The legislator who sponsored the solar tax credit (and numerous other green energy measures), State Senator Nick Gautreaux, condemns the ban. So does Representative Charlie Melancon, the Democrat hoping to oust Republican David Vitter from his Senate seat in November. Melancon’s district is ground zero for the BP disaster—he broke down weeping during a Congressional hearing while describing the devastation of its ecosystems, jobs and way of life—but a great many jobs in his district derive from the oil and gas industry.

It may be shocking to read in The Nation, but a blanket moratorium on new deepwater drilling may not be the best policy to pursue in the wake of the BP disaster. No state in the union is more addicted to oil than Louisiana; the oil and gas industry is responsible for roughly 25 percent of the state’s economic activity. If you abruptly cut off a hardened heroin addict, you can kill him; there is a reason physicians prescribe methadone rather than cold turkey. Louisiana absolutely needs to kick its oil habit; but it must do so through a planned, orderly transition or it will not work.

The transition must begin immediately, however, because the oil is running out. This fact is not much known or acknowledged in Louisiana, to put it mildly, but it comes from a source that even Chris John, president of the Louisiana Mid-Continent Oil and Gas Association (and a former Louisiana Congressman), concedes is a world-class "expert."

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Matthew Simmons, an investment banker, has operated at the highest levels of the oil industry for more than thirty-five years. No liberal tree-hugger, he briefed vice presidential candidate Dick Cheney during the 2000 campaign. In 2004, in a remarkable feat of investigation, Simmons analyzed hundreds of obscure engineering reports to reveal that Saudi Arabia’s oil reserves, commonly assumed to be all but inexhaustible, were much smaller than claimed and were declining precipitously. Simmons’s book, Twilight in the Desert, made him a leading proponent of "peak oil"—the theory that humanity has now extracted half of the earth’s oil and large future production increases are unlikely. At first derided as fringe, peak oil is now an open secret among specialists. "The battle is over, the peakists have won," James Schlesinger, the former energy and defense secretary, said in 2007.

Simmons says the BP disaster demonstrates that "we’re out of viable oil in the Gulf of Mexico." The remaining oil can be reached only with "ultra-deep vertical wells" that extend more than 18,000 feet under the sea floor—even deeper than BP was drilling. Chris John counters that companies have spent $8 billion since 2007 to lease deepwater fields in the gulf that "contain huge finds." Simmons, however, doubts such oil can be recovered, explaining, "The pressures and temperatures are enormous down there. BP’s blowout preventer was state of the art, but it wasn’t designed for that depth. It could handle 15,000 pounds of pressure per square inch, but it confronted probably 40,000 to 60,000. We just can’t do this kind of drilling anymore."

"We should leave oil before it leaves us," a statement the chief economist of the International Energy Agency made in 2008, encapsulates the challenge facing Louisiana. Yet even proponents of green energy warn that launching a direct assault on oil is not the way to go.

The reason Louisiana’s legislature passed the extraordinary solar tax credit is precisely that "it wasn’t a threat to oil and gas," says Wade Byrd, a former official with the state’s natural resources department who helped draft the bill. State Senator Gautreaux, who sponsored the bill, implicitly concurs: "A lot of solar companies wanted to testify in support, but I said no because that would draw attention. That bill passed with one minute left in the [legislative] session, and I think it did because nobody lobbied for or against it, so it was inconspicuous."

The results have been impressive, though. "In two years, we went from having a handful of solar companies in Louisiana to having more than a hundred," Gautreaux says. "The biggest installer of solar systems has a backlog of more than a year." And solar’s momentum will likely accelerate, thanks to a second victory by Byrd and Gautreaux. In 2009 the legislature approved their call for solar financing districts, which allow municipalities to sell bonds to cover the up-front costs of installing solar systems—often the biggest hurdle for property owners who want to go solar. The owners repay the municipality over time. "If you combine solar financing districts with the 50 percent tax credit, the cost just plummets," says Gautreaux.

Louisiana could reap similar benefits with wind, geothermal, biomass and other alternative energy sources, advocates say, if it joins the twenty-nine other states with renewable portfolio standards. An RPS, as the standard is known, requires electricity providers to supply a stipulated percentage of a state’s power from renewable sources by a certain date. Illinois, for example, requires 25 percent renewables by 2025; California, 20 percent by the end of 2010. The idea is to encourage private investment in renewables by assuring an ongoing market.

The Louisiana Public Service Commission took a step in this direction on June 23, when it authorized a pilot program to create up to 350 megawatts of renewable electricity generation within the next three years. Forest Bradley-Wright of the Alliance for Affordable Energy, the leading green consumers organization in Louisiana, calls the vote "a positive step." But he urges the commission to take the next step and establish an RPS that is mandatory, ambitious and includes only genuine renewable sources (an earlier draft RPS had defined nuclear power and "advanced coal technologies" as renewables).

But Entergy, the electric utility that is the only Fortune 500 firm headquartered in New Orleans, opposes a mandatory RPS. Wayne Leonard, Entergy’s CEO, has long urged putting a price on carbon, a stance critics attribute to the company’s heavy reliance on nuclear power. But Leonard argues that a mandatory RPS would actually retard the fight against global warming by forcing expensive renewable energy into production while leaving coal-fired power plants—the largest single source of US greenhouse gas emissions—untouched. Bradley-Wright responds that an RPS says nothing about removing existing power plants from supply; it only mandates the creation of new, renewable sources. Besides, he adds, the real answer is to increase energy efficiency, which could reduce Louisiana’s electricity demand by 30 to 50 percent, thereby making coal and other dirty energy sources unnecessary. Meanwhile, Byrd and Gautreaux challenge the claim by Entergy’s vice president for regulatory affairs, Mark Kleehammer, that Louisiana lacks good enough solar resources to produce competitively priced electricity. "Louisiana averages five hours of sun a day," Byrd says. "Germany averages four, and Germany has a strong solar program."

As Louisiana examines the potential of better energy efficiency, it has the good fortune not to be starting from zero. Byrd drafted efficiency codes for commercial buildings that were implemented in 1995; a residential code passed in 2007. But those codes should be strengthened, he says, and integrated with renewable-energy advances to create zero-energy buildings. Buoyed by $20 million of investment from HRI Properties, a national housing developer based in New Orleans, Byrd aims to construct 250 zero-energy houses for low-income residents in Louisiana—"hopefully all in one place, to show municipalities what’s possible," he says. Equally important is to reform utility regulation. At the moment, Entergy and other electricity providers in Louisiana face the same perverse incentive structure that prevails in most of the country: their profits increase according to how much electricity they sell. If Louisiana instead emulated California and rewarded utilities for reducing rather than increasing electricity consumption, both the environment and the utilities would benefit.

Efficiency is also the key to reducing the burden oil and gas production imposes on Louisiana, says Amory Lovins, the co-founder and chief scientist of the Rocky Mountain Institute in Colorado. The vast majority of oil produced or processed in Louisiana—and bear in mind, much of the latter is imported from abroad—is not consumed within the state. It ends up in cars, trucks and furnaces across the United States. Thus reducing America’s consumption of oil is a prerequisite to reducing Louisiana’s reliance on the oil industry. By far the fastest way to do that, argues Lovins, is "efficiency, efficiency, efficiency." In his book Winning the Oil Endgame, he outlines a strategy to end oil imports by 2040 and kick oil entirely by 2050. His strategy relies in part on expanding government procurement of super-efficient vehicles to drive down market prices of same. He also advocates so-called feebates: buyers of more fuel-efficient models in a given vehicle class would get rebates, financed by fees paid by buyers of less efficient models. France introduced feebates in 2008, says Lovins, and sales of less efficient vehicles fell by 42 percent while sales of efficient ones rose by 50 percent. "Louisiana may not be the best place to pilot something like this," he says, "but it’d be a good place."

Transforming Louisiana’s energy system is not an impossible dream but an economic and environmental imperative, not least because the state’s oil is fast disappearing. Louisiana can’t turn green overnight, which is all the more reason to get started right away. It’s only fair that the federal government assist in this task, for the nation as a whole has demanded the oil and gas Louisiana has supplied all these years. But primary leadership belongs at the state and local levels, shared among activist, business and political figures engaged in constructive dialogue with one another and the public at large. The solar tax credit and other innovations already undertaken show there is an appetite and capacity in Louisiana for blazing a new path.

Winning over regular people like Captain Pete and his dock mates is essential. That requires plain talk that respects and broadens local sensibilities, as well as bold actions that deliver concrete benefits—in a word, jobs. "Liberals like to talk about green jobs, but conservatives don’t like that term," says State Senator Gautreaux. "I’m neither liberal nor conservative, so I just say ‘good-paying jobs.’ Why do jobs have to have a color?"